Reductions in the credit ratings of state and local governments may mount this year as officials face the need to cut spending further, Standard & Poor’s said.
“Continued revenue decreases for state and local government may increase fiscal strain on budgets,” a San Francisco-based S&P analyst, Gabriel Petek, said in a report today. “Monitoring of liquidity will be especially important in 2011.”
States have reported $125 billion of budget gaps for fiscal 2012, according to the Center on Budget and Policy Priorities, a Washington research group, as the worst recession since the 1930s cut tax receipts by the most on record. That will cause “severe budget pressures requiring tough choices by government officials,” S&P said.
New York collected $363 million less in taxes than expected during the past nine months, which may help push the budget into a $1.5 billion deficit this year, state Comptroller Thomas DiNapoli said Jan. 20.
Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, state economists said Jan. 12. The $3.6 billion estimate is up from $2.5 billion in September.
State and local governments will have to make “difficult and unpopular budget choices and pay increasing heed to bond market conditions and pension costs,” S&P said.
Most will maintain their medium to high investment-grade ratings in 2011, it said.
“We do not feel that such difficulties will cause any sort of notable increase in defaults among our rated issuers,” Petek said.
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